Slovakia boosts German gas imports as Ukraine cut looms

LONDON, March 12 Wed Mar 12, 2014 10:32am EDT

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LONDON, March 12 (Reuters) - Slovakia is ramping up natural gas imports from Germany through the Czech Republic to preserve stockpiles as a buffer against potential disruption to Russian supplies, raising Slovakian prices above those at rival European hubs.

There was a sharp rise in Slovakia's gas imports from central Europe on Monday just as Ukraine declared it had not paid debts owed to Russia, escalating fears of a cut-off in supplies to Europe via Ukraine.

Withdrawals from Slovakian storage sites slowed last week and ceased entirely over the weekend, data from Gas Storage Europe showed, as tensions between Russia and Ukraine grew.

Slovakia is not yet rebuilding stocks, but traders said that higher imports from Germany via the Czech Republic are designed to substitute winter stock withdrawals and preserve a cushion of stored gas.

Wholesale gas prices in the European Union member country are trading at premiums to rival European hubs given the risks of disruption, traders said.

"We've been sending gas to Slovakia through the Czech Republic for a couple of weeks now as gas is more expensive there than in Germany, playing the regional arbitrage," a gas trader with a German utility said.

"When Ukraine didn't pay its last gas bill to Russia last Friday, orders for gas from Slovakia in Germany rose as Slovakia (which borders Ukraine) would be the first to be hit by a cut," he said.

Another said Slovakia's own gas needs were too low to explain the surge in cross-border flows and high wholesale gas prices.

Industry sources say the bulk of Germany's gas comes from Russia via the Nord Stream pipeline, purpose-built to avoid Ukraine, with the rest coming from Norway and the Netherlands.

Analysts said a short-lived cut of Russian gas supplies to Ukraine appears likely since Kiev failed to pay its last bill.

A pricing dispute in January 2009 prompted Russian gas exporter Gazprom to cut off supply to Ukraine which affected transit supplies to a dozen European countries.

"Gazprom disrupting gas to Ukraine for non-payment of its gas bills seems an almost inevitable occurrence," Energy Aspects said in a research note on Wednesday.

Following an unusually mild winter across Europe and a warm start to spring, regional gas stocks are almost 40 percent, or 10 billion cubic metres, higher than this time last year, when a long winter almost depleted gas stocks. (Additional reporting by Michael Kahn in Prague; editing by Jason Neely)

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